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The Performance Of Monetary Policy In The Nigerian Economy (1980-2010)
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Generally, the primary objectives of monetary policy is concerned with
the application of expansionary monetary policy measures during economic
recession and contractionary monetary policy controls money supply
because it is believed that its rate of growth has an effect on
inflation. The basic aim of monetary policies is not to aggregate
themselves but the aggregate in the real sectors of the economy such as,
level of capital price stabilization and economic development. Policies
are designed in order to change the trend of some monetary variables in
particular direction so as to induce the desired behavioral change in
the monetary policy. The central bank’s role is to conduct appropriate
monetary policy that is consistent with the main economic objectives
that will help the growth of gross domestic product (GDP), sustainable
inflation are and stable balance of payment position. This is done by
putting in place the direct or indirect monetary approach so as to
control monetary trends. In this regards the CBN determines the amount
of money to be supplied that is consistent with the nation’s
macro-economic objectives and manipulate the monetary instrument at its
disposal in order to achieve the stated objectives. Monetary policy
influences the macrocosmic objectives because it is believed that there
occurs a relationship between the real variables. Monetary policy
affects all aspects of our economic and financial decisions whether to
buy a car, build a house, start up a business or to expand the existing
ones, whether to send one’s child to school or to make the child learn
trade. Money supply or monetary policy tries to influence the
performance of the economy as reflected in key macro-economic indicators
like inflation, GDP and employment. It works by affecting aggregate
demand across the economy, that is, individuals’ and firms’ willingness
and stability to spend on goods and services. In doing this, monetary
policy has two fundamental goals to promote maximum sustainable output
and employment and to maintain sustainable price level in the economy.
The job of stabilizing output in the short run and promoting price
stability in the long run involves several steps first, the central bank
tries to estimate how the economy is doing now and how it is likely to
do in the medium term, then, it compares this estimates to its goals for
the output and the price level, if there is a gap between the estimates
and the goals, the CBN have to decide on how forcefully and swiftly to
act to close the gap. Estimate of the current economic conditions are
not as even as the most up-to-date data on key variables like
employment, growth, productivity etc, largely reflect condition in the
past. So to get a reasonable estimate of the current and medium term
economic conditions, the central bank tries to find out what the most
relevant economic developments are such as government spending, economic
conditions abroad, financial conditions at home and abroad and the use
of new technologies that boos productivity. These developments are the
incorporated in an economic model to see how the economy is likely to
evolve over time. In doing this, the central bank is confronted with
some unexpected development such as the Niger- Delta crisis that
disturbed the oil production and slowed down the revenue generation by
the government they therefore, have to build uncertainties into their
model. Uncertainty seems to be problem at every part of the monetary
policy process there is yet no set of policy and procedures that policy
makers can use to deal with all situations that may arise. Instead,
policy makers must decide how to precede by analysis the issue is far
from being settled. Indeed, the central bank spends a great deal of time
and effort in researching into the various ways to deal with different
kinds of situation. Since these issues are not likely to be resolved
very soon, the central bank is likely to continue to look at everything.
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ABSRACT - [ Total Page(s): 1 ]The purpose of this project work is based on the relative performance of monetary policy in the Nigerian economy. This work discussed the meaning of monetary policy is as combination of measures designed to regulate the value, supply and cost of money in an economy in consonance with the expected value of economies activities. The study shows further, the aims and objectives of monetary policy which includes price stability, maintenance of balance of payment equilibrium, promotion of employment, ... Continue reading---
